OPINION:
Nations around the world are increasingly looking toward the success of American businesses to fix their fiscal woes, and it’s time we put a stop to it and protect our economy and tax base.
Last year, I wrote about how Germany’s new application of a tax on intellectual property unfairly targets U.S. companies. The change of interpretation is based not on long-standing international tax principles but instead on a desire to find more revenue. The German tax is the continuation of a troubling trend in which nations around the world, many of which we count as our allies, see our economy and our businesses as a piggy bank.
Canada, our largest trading partner, neighbor, and one of our closest allies, is quickly moving toward implementing a digital services tax, or DST. On Nov. 28, Canada released an updated proposal that would enable the Canadian Cabinet to implement a DST. DSTs targeting U.S. companies have become widespread in recent years, having already been proposed or enacted in 38 countries around the world. Lawmakers and administrations of both parties have agreed that these taxes are discriminatory.
These targeted taxes continue to spread as countries around the world move forward with implementing the lopsided rules of the global minimum tax agreement, which discriminates against our tax credit-based incentive structure and could cause the United States to lose $57 billion to $122 billion in tax revenue. Taken together, the global minimum tax, Germany’s targeted tax on intellectual property, and the proliferation of DSTs add up to a new discriminatory system of international taxation designed to do one thing: Extract as much tax revenue from U.S. businesses as possible. On the latter two, the concern by policymakers in the United States has been bipartisan.
Canada’s looming DST is particularly alarming. Here are the facts: Our closest trading partner is breaking from nearly 140 countries that agreed in July to extend the 2021 moratorium on new DSTs through 2024 while the work toward a global agreement to address the tax challenges arising from the digitalization of the economy continues.
Canada’s DST proposes to target only companies with the most global revenue, which, as we know, are overwhelmingly U.S. companies. In departing from the global DST moratorium, Canada’s go-it-alone approach is in tension with its commitments under the United States-Mexico-Canada Agreement, which explicitly bars discriminatory treatment of digital products.
Whether by inhibiting growth through double taxation or by directly ceding taxing rights to other nations, the overall cost of DSTs and this new system of discriminatory taxes targeting the United States falls on our workers and taxpayers. In the case of DSTs, 8 million digital economy workers make up an industry that contributes 10.3% of gross domestic product and is growing almost twice as fast as other industries.
Republicans have been committed to ensuring that the United States remains a global leader, and it is imperative that President Biden and his administration join our efforts to help expand the economy and ensure that foreign tax authorities don’t pick apart our most successful economic sectors. As discriminatory taxes proliferate, our leaders need to step up and be clear that such practices will see retaliation.
The Biden administration should heed bipartisan calls by Congress to take action on DSTs. Specifically, the White House should make clear to Canada that implementation of its DST proposal will lead to prompt initiation of a Section 301 investigation that very likely would result in retaliatory tariffs, as occurred during the Trump administration.
Last July, I joined a letter to Treasury Secretary Janet Yellen expressing concerns about the administration’s failure to consult Congress and unilaterally endorse the Organization for Economic Cooperation and Development’s unrealistic solution to extraterritorial DST levies (the so-called Pillar 1 agreement), and in September, I joined my Ways and Means Committee colleagues in a bipartisan letter to the Biden administration to express our concern specifically about Canadian DSTs and urge action.
A month later, Senate Finance Committee Chairman Ron Wyden, Oregon Democrat, and ranking member Mike Crapo, Idaho Republican, followed suit with a bipartisan letter. Both committee letters called on the administration to make clear that the United States will respond to Canada’s Digital Services Tax with retaliatory trade measures, and that’s exactly what we should do.
We must make it clear to the world that our businesses are not a piggy bank. Otherwise, Congress will be forced to act on these discriminatory taxes.
• Republican Rep. Randy Feenstra represents Iowa’s 4th Congressional District and serves on both the House Ways and Means and Agriculture committees.
Correction: A previous version of this column misidentified the state of Sen. Mike Crapo. He represents Idaho.
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